The 7 Governance Myths – Part Two

 

Myth 5

In any organisation, the real power lies with the board.

Power has been defined as: “The… ability to influence the behaviour of others or the course of events” (Oxford Dictionary online). The terms power and influence are sometimes used interchangeably but influence is the means by which power is used. In an ideal world, since ultimate responsibility lies with the board, one would expect them to have the ultimate ability to influence. The reality is not that straightforward and boards have to negotiate across many stakeholders in order to maximise their role.

The board do have the authority and responsibility of leadership but power takes many forms. It sometimes lies with a dominant group of shareholders, a large client or group of clients or there are a number of industry sectors where we have seen the influence that employees have. The board should be aware of what power they really have and exercise their authority with the competence and skill required to ensure the board remains in control.

Maintaining good relationships between the board and the executive relies on power being adequately balanced in order to ensure the organisation is being effectively managed. It is a key objective for any board to get that balance right and work to its terms of reference. With a major part of the board’s role being fundamentally integrated with formulating and delivering corporate strategy an understanding of key stakeholders is crucial. By carrying out stakeholder mapping, it is possible to consider how interested a stakeholder will be in engaging with the organisation and communicating their expectations about the organisation’s strategies and key objectives and to what extent they have the power to influence them.

Mendelow (1991) classified stakeholders on a grid whose axes are the power to influence and the interest in the organisations activities. These factors help to identify the relationship between a company and its stakeholders and the potential approach of the organisation to stakeholder concerns.

Boards that ignore the importance of interested and powerful stakeholders are exposing themselves and they may find obstacles in the successful implementation of strategic objectives. Be careful also of those stakeholders who have a great deal of interest but lack the power to influence. A paper that I wrote after the aftermath of the UK riots of 2011 suggested that those who do not have influence will find other ways of trying to capture it. See my blog titled; ‘Why They rioted is not the Question’ from August 2011 available at karlgeorge.com/blog.

 

Myth 6

Corporate governance is just about compliance.

 

“Not everything that counts can be counted and not everything that can be counted counts.” Albert Einstein

It is difficult to prove that a causal relationship exists between good corporate governance and any metric that we care to conjure up to identify and measure business success. The point is we can’t prove that by changing the board size or composition, or the number of committees, for example, was the reason a company increased its profits. One or all of these changes may have contributed to increased profits but then again they may not have. The classic definition of corporate governance: “…the systems by which companies are directed and controlled…” (Cadbury Committee 1991), provides us with a framework for testing the parameters of good governance. In most cases however, these systems are influenced by so many factors and stakeholders that trying to find a model that provides one with complete assurance is not possible. If leadership is about doing the right things, rather than just doing things right – is governance more about counting the things that need to be counted and recognising that not everything can be counted?

Some people think that compliance and ticking boxes is all you need to do for good governance. However, as we say at the governance forum; “Governance is more than compliance!” You can adhere to best practice and have 100% compliance with a code of governance but that doesn’t mean you will avoid pitfalls. Compliance with a code is not as important as following the principles and the best practice that they postulate. Boards should take the time to consider how the organisations that they lead measure up against its strategic objectives and the outcomes that they are expected to achieve for the stakeholders that they are accountable to. The UK Corporate Governance Code 2012, states that much more attention is needed to be paid to the spirit of the Code as well as its letter.

Good corporate governance is part of a process that should be integrated across the organisation. It is not about ensuring there is a department or an officer to take care of governance. It should be ingrained in the systems and processes that the organisation undertakes and it’s not just for the board but throughout all levels of the business.

 

Myth 7

Board meetings are the best way to run, monitor and control an organisation’s activities.

Board meetings are a practical and cost effective way but by no means are they an ideal way to monitor and control. Getting the agenda and information right at a meeting is more of an art than a science! It would be hard to invent a system that was so inefficient to make decisions as the traditional board meeting. Boards that deliberate effectively before coming to a decision and who are able to distinguish between those with the loudest voice rather than those that are most knowledgeable are rare. Everyone knows that the items higher up the agenda get most attention, and who wants to pore over the financial performance in any detail or the complicated risk map that a committee has already done on your behalf? Let’s face it, boards rubber stamp the hard work that has been presumably done by a committee or the executive after a few cursory remarks since there is just not enough time to go through them in any detail in the board meeting. Have you noticed that board members are reluctant to input on the more substantive issues? Perhaps they don’t want to embarrass themselves so when an opportunity comes to contribute on something quite trivial, then board members wade into spending a disproportionate amount of time on these matters. What about those individuals, normally staff members, who present their report and wait for feedback their contribution is only 5/10 mins of the meeting, but then they have to endure 3 hours of discussion without contributing, isn’t that a waste of time?

Board behaviour can also have an influence on the productivity and effectiveness of board meetings and therefore must be managed well. This will ensure that board meetings do offer an effective place to monitor and control the organisation’s activities.

If there were no constraints over time and management of information then monitoring and control may be done differently. Scrutiny needs to take place in many different formats. Typically, organisations have a number of stakeholders, all of whom should be included in the process of taking the temperature of the organisation. Board members must stay strategic but site visits and interaction with staff, where appropriate, should be encouraged to get assurance and help them undertake their scrutiny role. This will not only help to inform board meetings and give board members real insight into how the organisation is operating, it will also increase the likelihood that they are fully aware of what is taking place in the organisation. Board members must be careful not to interfere or get too operational but some interaction outside of the meetings with fellow board members and staff members is important.

Board meetings are necessary but those that are not chaired and managed well are not worth the collective time, skills and expertise represented by the individuals at the meeting.

 

Until next time…